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Exam 2: Accounting for Accruals

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Question 21

True/False

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The balance in accounts receivable represents the amount of cash the company is required to pay in the future.

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Question 22

Matching

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Wheaton Co.performed services for a customer on account.Indicate whether each of the following statements about this transaction is true or false.

Premises

Responses

Assets and equity both increase when the revenue is recognized.

True

This transaction did not affect cash flows.

False

The Company recorded an increase in revenue and a decrease in accounts receivable.

This transaction is an example of an asset exchange transaction.

Recognition of revenue would be delayed until cash was collected.

Premises

Assets and equity both increase when the revenue is recognized.

This transaction did not affect cash flows.

The Company recorded an increase in revenue and a decrease in accounts receivable.

This transaction is an example of an asset exchange transaction.

Recognition of revenue would be delayed until cash was collected.

Responses

True

False

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Correct Answer

Premises

Responses

Assets and equity both increase when the revenue is recognized.

This transaction did not affect cash flows.

The Company recorded an increase in revenue and a decrease in accounts receivable.

This transaction is an example of an asset exchange transaction.

Recognition of revenue would be delayed until cash was collected.

Premises

Assets and equity both increase when the revenue is recognized.

This transaction did not affect cash flows.

The Company recorded an increase in revenue and a decrease in accounts receivable.

This transaction is an example of an asset exchange transaction.

Recognition of revenue would be delayed until cash was collected.

Responses

Question 23

Multiple Choice

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Warren Enterprises began operations during Year 1.The company had the following events during Year 1: 1) The business issued $40,000 of common stock to its stockholders. 2) The business purchased land for $24,000 cash. 3) Services were provided to customers for $32,000 cash. 4) Services were provided to customers for $10,000 on account. 5) The company borrowed $32,000 from the bank. 6) Operating expenses of $24,000 were incurred and paid in cash. 7) Salary expense of $1,600 was accrued. "8) A dividend of $8,000 was paid to the stockholders of Warren Enterprises. After closing,what is the balance of the Retained Earnings account as of December 31,Year 1?"

Addison Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects on Addison's statements?

Expenses incurred on account increase the accounts receivable balance.

A payment to an employee in settlement of salaries payable decreases an asset and decreases equity.

Providing services to customers on account is an asset exchange transaction.

The matching concept leads accountants to select the recognition alternative that produces the lowest amount of net income.

Revenue on account amounted to $5,000.Cash collections of accounts receivable amounted to $2,300.Expenses for the period were $2,100.The company paid dividends of $450.What was net income for the period?

Fancy Foods Incorporated had an ending balance in accounts payable of $6,000.The company incurred $72,000 of operating expenses on account and paid $90,000 cash to settle accounts payable.Determine the beginning balance in accounts payable.

Revenue on account amounted to $9,000.Cash collections of accounts receivable amounted to $8,100.Cash paid for operating expenses was $7,500.The amount of employee salaries accrued at the end of the year was $900.What was the net cash flow from operating activities?

The term "recognition" means to report an economic event in the financial statements.

Certified public accountants are obligated to act in a way that serves the public interest.

Accrued interest expense is an asset use transaction.

What is the purpose of the accrual basis of accounting?

What action did the U.S.Congress take because of the audit failures at Enron,WorldCom and other companies?

Which of the following choices accurately reflects how the recording of accrued salary expense affects the financial statements of a business?

The governance of a corporation includes the roles and responsibilities of the board of directors,managers,shareholders,and auditor.

Chico Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects on the elements of Chico's financial statements?

On December 31,Year 1,Gaskins Co.owed $4,500 in salaries to employees who had worked during December but will not be paid until January,Year 2.If the year-end adjustment is properly recorded on December 31,Year 1,what will be the effect of this accrual on net income and cash flows from operating activities reported for Year 1?